The Importance of Inventory Planning

When you’re a small business selling goods to the public or retailers, one of the most difficult things to get right can be your inventory planning.  Either side of the ideal stock level can have disasterous consequences for your business.  If you have too much stock, your cash is all tied up in products you can’t sell and if you have too little, you are losing out on sales.  Both of these scenarios have an impact on your cash flow and it is critical to monitor them regularly.

In the early days of your business, you may think that there are more important things to do than spent time and money on stock control.  As the business grows though and you have more funds available to put the processes and systems to put in place, you may find that you have less time and mistakes can be more costly than they would have been in the early days.

Basic forecasting is much better than none at all

There are simple forecasting measures that you can take with even a basic spreadsheet.  You won’t get everything right – any form of forecasting is only guesswork – but you should make it as informed as possible.  Think about average levels of sale, per week or month or whatever suits.  Look at seasonal fluctuations to see how they impact on demand.  Check how much faster new items sell compared to your older products, and see if you can work out how fast the sales tail off.  Be aware of how long it takes you to replenish stock levels.  Make sure that you build in some form of buffer, or contingency, to allow for unexpected demand (but be careful to monitor this very closely – this is the area where you can easily tie up a load of cash!).

Don’t feel bad if you end up getting some numbers wrong, as long as you’ve taken care to factor in everything you can. A rough forecast is infinitely preferable to none at all.

Don’t be afraid of the big boys

When it comes to deals with big retailers, it is important not to let them rough you up too much.  Obviously, it is fantastic if you can get your products into a major retailer or department store, but do your sums before signing any contracts.  Weigh up any reductions for discounts that the retailer will invariably want, look at reserved stock and consider whether they need any exclusivity.

You should also consider your other customers, because if they see your goods in a big store at a price lower than they can afford to charge, this may lead to them feeling that they cannot compete and cease stocking your products.

It is so important to sit down and think about stock control at the earliest opportunity.  Follow these tips and you will find that it isn’t too difficult to try and keep inventory and demand under control.